Stay Surety Ready | Five Helpful Tips
At some point in your company’s life-cycle, the odds are high that you will be asked to bond for more than just a license or permit. The process for being approved to bid a job that requires bonds is significantly more intrusive of your time and needs upfront planning. Especially for projects in excess of a million dollars.
Will your firm be ready to bond at a moment’s notice? The truth is that many companies are not bond ready unless they’ve made it a priority to understand the process and best practices. Surety-ready companies practice the surety game whether they bond a significant amount of work, or have no bond needs for a long stretch of time.
What can you do to learn the rules of the game and be one of your surety’s favorite clients? How do you practice the game when you don’t have regular bond needs? Learn what you need to practice, so you can be a star player.
Here are five steps you can take before your company decides to go after the perfect job that suddenly puts you in the bond game:
1: Learn the basic rules and guidelines of the surety world before you ever start to play.
You can’t win any game if you don’t know the rules or what to practice. Ask questions if you don’t understand why a certain requirement is in place.
Tip: Your surety broker should be able to give you these specifics and guide you along the way. If not, you need a new broker. The EPIC surety team has the depth of knowledge and experience required to coach our clients. We want to be asked the tough questions, and we are always happy to help.
2: Don’t wait until you need a bond.
Your company can be pre-qualified. If you are not the owner, ask the owner to help the firm stay bond ready by submitting a surety pre-qualification application to your broker in advance of ever needing a bond. Even a partially completed application offers sufficient feedback. This will help you understand the next steps to establishing a bond line, and at what limits the firm qualifies.
Tip: This is a great task to undertake after bid season is over or weather slows down your projects. A guideline of what the surety markets will support for your company in a single job size and a total backlog program is a valuable tool for the coming year. You can avoid wasting precious time and money pursuing bonded work that may be too far outside these parameters.
At EPIC we look forward to discussing goals, evaluating histories, and reviewing applications. We will always give our feedback before sharing with the surety. We want our clients presented right the first time!
3: Once you have been pre-qualified, keep your underwriting file current.
The process of maintaining a bond line is significantly less cumbersome than the initial qualification. If you wait too long to provide updates, you may have to start over.
Tip: Don’t wait to be asked for file updates. Send your broker your current financials and work in progress regularly (no less than annually), even when bond needs are infrequent or non-existent. The EPIC team loves to hear from our customers. If they don’t send those updates in, we will gently remind them once or twice a year.
4: Learn and understand your surety’s expectations on working capital and net worth, relative to the total backlog you carry on bonded and non-bonded work, along with the upper limit single job size you wish to pursue for the next year.
Even if there are no bond requests forthcoming, you will start to recognize the timing of when a bond request could be problematic without run off of existing work or larger job size experience.
Tip: Work with your CPA, accounting staff, and your surety broker regularly to review working capital and net worth figures and establish benchmarks for job size and aggregate programs, including run off projections. We have the key tools and spreadsheets at EPIC to help our clients establish true backlog when that perfect job comes along. We like to be creative and find ways to support our clients’ goals!
5: Discuss with your CPA and internal accounting team the expectations of the surety for financial ratios, quality of financial statement presentation, schedules needed, and frequency of reports.
Make sure your team understands what is being requested, how often, and why it is important. Ask your surety broker to assist your team in remembering these tasks.
Tip: Obtain from your broker or CPA the key spreadsheets that can be used to calculate and compare these important surety ratios for you, and set reminders for how often you want to share reports.
Then, you can easily track your company’s progress over time and make sure your bond file is always current. We love the fact that technology keeps track of those important dates, and does all the calculations – just insert those numbers and the heavy lifting is done for you! Our team is happy to share our spreadsheets, and also loves to help clients interpret and bring meaning to any of those ratios from a surety perspective.
A Final Word
A great athlete or team surrounds themselves with the best advisors – including advisors they hope they never have to engage, the team doctors. These star athletes recognize that their entire support team needs to be communicated with regularly. Without this practiced communication with the entire team, a sudden change in circumstances can throw the game plan into a tailspin.
A great construction company does the same. Surround yourself with good advisors, and bring your surety team in early and regularly, even if you don’t need to engage them on that bonded job yet.
Implement and practice these five simple steps, and communicate often. Stay in the bond game – reduce your stress on game day and stay ready to play. Stay Surety Ready.
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